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February 2, 2009 Jay Finegan, 287-1445
Rep. Knight Submits Bill Exempting Severance Pay from State Taxes

AUGUSTA – State Rep. Gary Knight has introduced legislation to exempt severance pay from Maine’s 8.5 percent income tax, asserting that workers who lose their jobs in this severe recession are unlikely to find comparable employment elsewhere. He plans to tack on an amendment to make the tax-exemption retroactive to include workers let go last year as the big layoffs began to hit.

The bill, LD 197, is entitled An Act to Provide Tax Relief to Workers Who Lose Their Job Due to Business Closure. Rep. Knight (R-Livermore Falls) said he proposed the legislation to ease the financial impact on workers who were let go due to the shutdown of the #10 paper machine at Wausau Paper Company. Displaced workers were provided severance packages based on number of years of service with the company and its predecessors at the Otis site, in Jay.

“What is exasperating to these workers, and to me, is the huge amount of taxes that are withheld when one receives a lump sum severance payment,” said Rep. Knight, a member of the Legislature’s Taxation Committee. “As I understand it, the Internal Revenue Service requires that 28 percent be withheld and the state portion is 8.5 percent. A displaced worker has to hand over more than one-third of his severance in taxes. That is a savage hit. And for many of the older workers, that severance payment could be the last check they receive prior to unemployment benefits.”

Rep. Knight acknowledged that his bill will face tough traveling in the Legislature. Given the state’s grim fiscal situation, any legislation that reduces state revenues will encounter opposition. But he said the state does not employ the same scrutiny to people applying for welfare, Medicaid and other costly public assistance payments. “Our state continues to lead the nation in providing benefits to many newly arrived people, without asking anything in return, not even legal residency,” said Rep. Knight. “Why should we not help our own industrious workers who have paid taxes their entire working lives and now face extreme adversity?”

Rep. Knight said countless Mainers are struggling desperately to “maintain their homes, autos and any semblance of a normal life.” Now, he added, “we are seeing hundreds of billions of dollars handed out to banks, investment firms and other entities that were complicit in creating this economic collapse. Yet when it comes to hammering a hard-working Mainer, the government is right there demanding a huge cut of his severance. Hopefully, the Legislature will find merit in this bill and do right by our citizens.”

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